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Copyright: Toni Straka, 2005-2011 This blog is for information and entertainment purposes only. Under no circumstances does this information represent a recommendation to buy or sell securities or any other type of investment instruments.

Monday, July 27, 2009

It's summertime and the bloggin' ... strays a little from my usual diet of central bank watching, calling for a revival of the gold standard and criticizing the excesses of greed.Having correctly forecasted the current crisis of the Western world since 2005 and fearing the coming period of hyperinflation due to central banks more than willing to monetize the debt I have shifted portfolio contents accordingly. While I have fared well with my gold stocks, Redback Mining (RBI.TO) still being my long term favorite - reported a new high-grade discovery today - since I got in at C$1.50 I had spent the better part of 2007 in Vancouver, focusing on silver stocks.Taking Ted Butlers arguments that there is less silver than gold above ground with more than just a grain of salt, I nevertheless believe that silver will outperform gold in the long run as it has also industrial uses as the best electric conductor at dirt cheap prices.The strange thing about the former monetary metal is where has it gone? Not even the Mexican central bank reports its silver holdings and neither does the People's Bank of China or the Reserve Bank of India, 2 countries that had been on a silver standard before WW2.Recycling experts say most silver used in appliances does not get recycled, citing cost concerns. The catalytic process becomes a lot more interesting when one looks at e.g. platinum, currently traded at $1,214.This amounts to a massive loss of mined silver although it cannot be quantified.There are more fundamentally positive reasons for silver. The gold/silver ration stands at 1:68 at the time of writing. In the last 2000 years this ratio was closer to 1:15 until US president Nixon closed the gold window.According to the Mogambo Guru silvers historic record price was $1,012 per troy ounce:

The historical high for silver was set 532 years ago in 1477, topping at (using the purchasing power of 1998 dollars) a princely $806 an ounce. By comparison, the price of silver less than $19 an ounce today, and was only about $5 an ounce in 1998, after having bottomed at under $4 an ounce in 1992.Now, fast-forward to today as our 2008 dollars, which have fallen 50% in purchasing power since 1998, means that the all-time high price of silver, set in 1477, now stands at $1,012 an ounce, measured in the buying power of 2008 dollars!

In such a long term perspective the Hunt brothers' failed cornering of silver with a high at $50 appears quite tame.As I live in a country that punishes silver bullion investments with 20% VAT I get my ounces through investments in silver miners and the ETF of Zuercher Kantonalbank.I prefer junior silver miners as they offer the biggest bang for the buck after the worst crash of miners in the last 80 years in 2008.Most companies I follow have yet to recover to their highs made in 2007 or early 2008 when silver spiked to $21, only to fall back to $14 within a week.A silver bug in Vancouver has saved me a lot of work at comparing junior silver producers.Before I report on his findings I feel better when informing potential investors that the whole silver market, no matter whether physical or mining shares, is a tiny, tiny speck in the world of investment instruments. But this is also where the biggest gains of the future may be made. Just imagine once the mainstream mutual funds start to allocate said miners in their asset allocation. A few billion will propel gold and silver miners to the moon and maybe even further.

GRAPH: The bunch of junior miners resembles a minefield. Yesteryear's production is not a guidance for the future as ECU Silver, First Majestic and Genco Resources prove this with wild swings in annual production. Click graph for a larger image.

A look at net income shows that miners often need many years to arrive at a positive net income due to the huge outlays until production starts.

GRAPH:Impact Silver is the only member of this peer group consistently recording growing net income. Click for a larger image.

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EXCERPT FROM THE US CONSTITUTION, Article I, section 10: No State shall ... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts....

FROM THE US TREASURY WEBSITE: "Federal Reserve notes are not redeemable in gold, silver or any other commodity, and receive no backing by anything. The notes have no value for themselves, but for what they will buy."

A LESSON FROM HISTORY BOOKS: The past 300 years have proven that ALL fiat money experiments ended in complete devaluation. From Rome to Britain: every empire vanished into oblivion soon after it went off the gold standard. It is time to recognize the obvious: Unbacked money has never worked.

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About Me

I am an INDEPENDENT Certified Financial Analyst who worked as a financial journalist for 15+ years and now evaluate global market trends. Analyzing financial and political news permanently I want to share my insight with those who understand that we are in an era of global redistribution of wealth. The US-European centric approach does not work anymore. 6 billion people in the developing countries now demand their fair share of the world's resources.
Having worked many years for a leading newswire I have learned to understand the fatal concept of ever expanding credit by heart. If you want to learn about the future of the economy, study history.